Cost and Management Accounting Mid-Sem prep 2022

Topic 01: Cost Sheet

Question 01:
Particulars Rs.
Material Consumed 60,000.00
Productive wages 20,000.00
Direct expense attributable to production 5,000.00
Consumable stores 2,000.00
Oil and lubricants 500.00
Factory supervisor’ salary 6,000.00
Unproductive wages 1,000.00
Factory Rent 2,000.00
Repair & Depreciation 600.00

Requirement:
Calculate Factory Cost.
Solution
Particulars Rs. Rs.
Direct Material 60,000.00
Direct Labor 20,000.00
Direct Expenses 5,000.00
Prime Cost 85,000.00
Add: Factory Overhead 0.00
85,000.00
Indirect Material:
Consumable stores 2,000.00
Oil and lubricants 500.00
2,500.00
Indirect Labor:
Factory supervisor’ salary 6,000.00
Unproductive wages 1,000.00
7,000.00
Indirect Expense:
Factory Rent 2,000.00
Repair & Depreciation 600.00
2,600.00
Total Factory Cost 97,100.00

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MBA (Business Analytics)
Question 02:
Particulars Rs.
Opening stock of Raw material 12,500.00
Purchase of Raw material 1,36,000.00
Closing stock of Raw material 85,00.00
Direct Wages 54,000.00
Direct Expenses 12,000.00
Factory Overhead (100% of Direct wages)
Office and Administrative Expenses (20% of Factory Costs)
Selling and Distribution Expenses 26,000.00
Opening Stock of Finished Goods 12,000.00
Closing Stock of Finished Goods 15,000.00
Profit On Cost 20%

Required:
Calculate Sales Revenue
Solution
Particulars Rs.
Opening stock of Raw material 12,500.00
Purchase of Raw material 1,36,000.00
Closing stock of Raw material (8,500.00)
Raw Material Consumed 1,40,000.00
Direct Wages 54,000.00
Direct Expenses 12,000.00
Prime Cost 2,06,000.00
Factory Overhead (100% of Direct Wages =100%×54,000) 54,000.00
Factory Cost (Production Cost) 2,60,000.00
Opening Stock of Finished Goods 12,000.00
Closing Stock of Finished Goods (15,000.00)
Cost of Goods Sold 2,57,000.00
Office and Administrative Expenses (20% of Factory Costs=20%× 260,000) 52,000.00
Selling and Distribution Expenses 26,000.00
Cost of Sales 3,35,000.00
20 67,000.00
Profit (335000× 100)
Sales 4,02,000.00

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MBA (Business Analytics)
Question 03: (Assignment Question)

Solution:

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 Srabon Barua
MBA (Business Analytics)
 Topic 02: Valuation of Material Purchase

01) Cost of Purchase = Quantity × Rate per Unit

02) Adjustments:
i) Duties & Taxes
ii) Discounts
iii) Other Adjustments

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MBA (Business Analytics)
03) Discounts

Discounts

Subsidies
Trade Cash
and Quantity
Discounts Discounts
Discounts

i) Trade Discounts:
A trade discount is the reduction in price a manufacturer or wholesaler
gives a wholesaler or retail when they buy a product or group of
products.
These Discounts are deducted.

ii) Cash Discounts:

Cash discounts refer to an incentive that a seller offers to a buyer in return for
paying a bill before the scheduled due date.
These are Finance Charges, hence included in the Administrative Overhead.

iii) Subsidy and Quantity Discounts:

These are deducted from the cost of purchase.

04) Duties & Taxes:

Duties &
Taxes

Road Taxes Any form of Customs

& Toll Taxes GST Duty

i) Road Taxes & Toll Taxes:

These are added to Cost of Purchase.

ii) Any form of GST:

Need to be deducted from Cost of Purchase.

iii) Customs Duty:

Added to Cost of Purchase

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 05) Penalty & Charges:

Penalty &
Charges

Detention
Shortage of
Demurrage Charges of
Material
Penalty

i) Demurrage:
a charge payable to the owner of a chartered ship in respect of failure to load or
discharge the ship within the time agreed. It is an abnormal cost and not included
in Cost of Purchase.

ii) Detention Charges and Penalties:

If these are due to the fault of the producer, then it is needed to be included in
the cost of purchase. Otherwise, needed to treated as abnormal cost.

iii) Shortage of Material:

If it is due to normal reasons, then it needs to be included in Cost of purchase.
If due to abnormal reasons, needs to be ignored.

Question 01:
SKD Company Ltd., not registered under GST, purchased material P from a company which is
registered under GST. The following information is available for the one lot of 1,000 units of
material purchased:
Listed price of one lot ₹ 50,000
Trade discount @ 10% on Listed price
CGST and SGST (Credit Not available) 12% (6% CGST + 6%
SGST)
Cash discount @10%
(Will be given only if payment is made within 30 days.)
Freight and Insurance ₹ 3,400
Toll Tax paid ₹ 1,000
Demurrage ₹ 1,000
Commission and brokerage on purchases ₹ 2,000
Amount deposited for returnable containers ₹ 6,000
Amount of refund on returning the container ₹ 4,000
Other Expenses @ 2% of total cost

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20% of material shortage is due to normal reasons.
The payment to the supplier was made within 20 days of the purchases.
Requirement:
You are required to calculate cost per unit of material purchased to SKD Company Ltd.
Solution:
Computation of Total cost of material purchased of SKD Manufacturing Company
Particular Units Rs.
Listed Price 1,000 50,000.00
Less: Trade Discounts @ 10% (50000×10%) (5,000.00)
Net Price 45,000.00
Add: CGST @ 6% 2,700.00
Add: SGST @ 6% 2,700.00
Add: Toll Tax 1,000.00
Add: Freight and Insurance 3,400.00
Add: Commission and brokerage on purchases 2,000.00
Add: Amount deposited for returnable containers 6,000.00
Less: Amount of refund on returning the container (4,000.00)
58,800.00
2 1,200.00
Add: Other Expenses (58800 × 98)
Total Cost of Material 60,000.00
Less: Shortage due to Normal Loss (1000× 20%) (200)
Effective quantity of Material Purchased 800

𝐓𝐨𝐭𝐚𝐥 𝐂𝐨𝐬𝐭 𝐨𝐟 𝐌𝐚𝐭𝐞𝐫𝐢𝐚𝐥 𝐏𝐮𝐫𝐜𝐡𝐚𝐬𝐞𝐝 𝟔𝟎,𝟎𝟎𝟎.𝟎𝟎

Hence, Cost Per Unit = = = ₹75.00 per Unit
𝐄𝐟𝐟𝐞𝐜𝐭𝐢𝐯𝐞 𝐪𝐮𝐚𝐧𝐭𝐢𝐭𝐲 𝐨𝐟 𝐌𝐚𝐭𝐞𝐫𝐢𝐚𝐥 𝐏𝐮𝐫𝐜𝐡𝐚𝐬𝐞𝐝 𝟖𝟎𝟎

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MBA (Business Analytics)
Question 02:

Solution
a) Computation of Effective Quantity
Particular Chemical A Chemical B
Kgs Kgs
Quantity Available 10,000 8,000
Less: Normal loss (500) (320)
9,500 7,680
Less: Provision for deterioration @ 2% (190) (154)
Effective Quantity 9,310 7,526

b) Computation Of Material cost

Particular Chemical A Chemical B
Rs. Rs.
Purchase Price 1,00,000.00 1,04,000.00
Add: Customs Duty:
Chemical A: (1,00,000× 10%) 10,000.00 -
Chemical B: (1,04,000× 10%) - 10,400.00
1,10,000.00 1,14,400.00
Add: Freight Charge:
5
Chemical A: (3,840× 9) 2,133.00 -
4
Chemical B: (3,840× 9) - 1,707.00
Total Purchase Cost 1,12,000.00 1,16,107.00

𝟏,𝟏𝟐,𝟎𝟎𝟎.𝟎𝟎
Rate per Kgs for Chemical A = = Rs. 12.03 per Kg
𝟗,𝟑𝟏𝟎
𝟏,𝟏𝟔,𝟏𝟎𝟕.𝟎𝟎
Rate per Kgs for Chemical B = 𝟕,𝟓𝟐𝟔
= Rs. 15.43 per Kg

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 Topic 03: Inventory Management & Control

1) Re-Order Stock Level: When to order?

2) Re-order Quantity (Economic Order Quantity): How much to order?
3) Maximum Stock Level: This represents the minimum quantity above which stocks should
not be held at any time. (Ask: Up to how much to stock?)
4) Minimum Stock Level: This represents the minimum quantity of stock that should be held
at all times. (Ask: At least how much to stock?)
5) Average Stock Level: Stock normally stored.
6) Danger Level of Stock (Safety Stock level): Emergency level of stock. The level below
which stocks should not fall in any case. Normal issues of stock are usually stopped at this
level and made only under specific instructions.
7) Buffer level of stock: To meet sudden increase in demand. This is an excess amount of
raw materials kept on hand to guard against any unplanned inventory shortages leading into
the production process.

Formula:
1) Re-order Level = Maximum consumption x Maximum re-order period.
𝟐× 𝑪𝟎 ×𝑫
2) Re-order Quantity (EOQ) = √ 𝑪𝒉
i) 𝑪𝟎 = Cost of placing an order
ii) 𝑫 = Annual consumption (units) during the year
iii) 𝑪𝒉 = Annual carrying cost per unit

3) Maximum Stock Level = Re-order level + Re-ordering quantity – (Minimum

consumption x Minimum re-order period).
4) Minimum Stock Level = = Re-order level – (Normal usage x Average re-order period)
Maximam Stock Level+minimum Stock Level
5) Average Stock Level =
2
1
= Min Stock level + 2 × Re-order Quantity
6) Danger (Safety) Level of Stock = Average Consumption × Lead time for Emergency
Purchase
= Re-Order level – (Average rate of consumption × Re-order period)

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MBA (Business Analytics)
Question & Answer 01:

Question 02

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Solution:

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MBA (Business Analytics)
 Labor Costing

Topic-04: Calculation of Idle Time

Idle Time: The lapse of time during which there is no production. There are 2 types of Idle
Time-
1) Normal Idle Time: The lapse of time that cannot be eliminated. For example,
shifting of labor from one job to another.
2) Abnormal Idle Time: The lapse of time that can be eliminated. example, strikes,
resignation, etc.

Idle Time = Time paid – Time Booked

Question 01:
Mr. x is an employee gets the following benefits.
Basic pay Rs. 10,000.00 per month.
Dearness Allowance (D.A) Rs. 2,000.00 per month.
Bonus 20% of Salary & D.A
Other Allowances 2,500.00 per annum.
Mr. X works for 2,400 hours per annum out of which 400 hours are non-productive and
considered as normal idle time.
Requirements:
Compute the effective hourly cost.
Solution
Particulars Rs.
Basic Pay (10000 × 12) 120,000.00
Dearness Allowance (2000 × 12) 24,000.00
Bonus {(120000+24000) × 20%} 28,800.00
Other Allowance (2,500 × 12) 30,000.00
Gross Income 2,02,800.00

Effective working hours = 2,400 – 400 = 2,000 hours

𝟐,𝟎𝟐,𝟖𝟎𝟎.𝟎𝟎
Effective Cost per hour = = Rs.101.40 per Hour.
𝟐,𝟎𝟎𝟎

Question 02:
In a factory there are 6 days of working each week with 8 hours per day. A worker is paid at the
rate of Rs.100.00/day and Dearness allowance at the rate of 120% of the basic. Workers are
allowed to take 30 minutes off during his hours as lunch hours and 10 minutes recess for rest.

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MBA (Business Analytics)
During a week a particular employee’s card shows that he works for job X, job y, and job Z for
15, 12, and 13 hours respectively. There is no wastage of time while waiting for the job.
Requirements:

i) Find that how the direct labor will be chargeable to each and every job.
ii) Calculate if there will be any loss of time chargeable to that particular
labor.
Solution
{𝟒𝟖𝟎 𝐦𝐢𝐧𝐮𝐭𝐞𝐬 − (𝟑𝟎+𝟏𝟎) 𝐦𝐢𝐧𝐮𝐭𝐞𝐬}
(i) Total effective hours in a week [ x 6] = 44 hours.
𝟔𝟎
Total hours worked in the week (15+12+13) = 40 hours.
Total Loss of Hours (44 – 40) = 4 hours
Total Weekly wages {100+(100 x 1.20)) x 6 = Rs.1,320.00
𝐓𝐨𝐭𝐚𝐥 𝐰𝐞𝐞𝐤𝐥𝐲 𝐰𝐚𝐠𝐞𝐬 𝟏𝟑𝟐𝟎
So, Effective hourly rate = = = Rs.30.00 per
𝐓𝐨𝐭𝐚𝐥 𝐞𝐟𝐟𝐞𝐜𝐭𝐢𝐯𝐞 𝐡𝐨𝐮𝐫𝐬 𝐢𝐧 𝐚 𝐰𝐞𝐞𝐤 𝟒𝟒
hour

(ii) Allocation of wages in Cost accounting

Particulars Rs.
Wages allocated to Job X: (Rs.30.00 x 15) 450.00
Wages allocated to Job Y: (Rs.30.00 x 12) 360.00
Wages allocated to Job Z: (Rs.30.00 x 13) 390.00
Loss Charged (debited) to Costing Profit and Loss Account (Bal. figure) 120.00
Total 1,200.00

Topic 05: Incentive Scheme

Classificatin of
the Incentive
Schemes

Differential Bonus Schemed

Premium Bonus Group Incentive
Peace rate for Indirect
Plan System
System Workers

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MBA (Business Analytics)
01) Differential Peace rate system:

i) Taylor’s Differential Peace rate system:

In the Taylor differential method, piece rates were determined by time and
motion study. Day wages were not guaranteed. There were two rates: very low
piece rate and high piece rate. Thus, the system was designed to:
• Reward the efficient workers by setting a high piece rate for high level
production, and
• Discourage the below-average workers by providing no guaranteed
wages and setting low piece rate for low level production.
Illustration:
This system can be further understood through the example given below:
Standard Output = 200 units

Rate per unit = Rs 10 paise

Case (1): Output = 220 units

Earnings = 220 x (120/200) x 0.1 = Rs 13.20

Case (2): Output = 180 units

Earnings = 180 x (80/200) x 0.1 = Rs 7.20

It is clear from the above example that the worker is paid a higher rate (Rs 13.20) for high
production (220 units) and low rate (Rs 7.20) for low production (180 units). Thus,
Taylor’s differential piece rate system works on the principle that the inefficient worker
must be paid at a low piece-rate for low production such that he is left with no other option
but to leave the organization.

Example 01:
From the following particulars, calculate the earnings of workers X and Y
and also comment on the labor cost.
Standard time allowed: 20 units per hour
Normal time rate: Rs. 30 per hour
Differential to be applied:
80% of piece rate when below standard
120% of piece rate at or above standard

In a particular day of 8 hours, X produces 140 units while Y produces 165 units

Solution:
Standard production per day is 20 units × 8 hours = 160 units

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 Worker X produces 140 units which means he is below standard and will get wages @
80% of the normal piece rate

X’s earnings:
Normal piece rate = Rs. 30 per hour/20 units = Rs. 1.5 per unit
80% of the normal piece rate = Rs. 1.20 per unit
Earnings = Rs. 1.20 × 140 units = Rs. 168
Labor cost per unit = Rs. 168/140 units = Rs.1.20

Y’s Earnings:
Y has produced more than the standard production of 160 units and hence he will get wages
@ 120% of normal piece rate. His earnings will be as shown below.

Normal piece rate = Rs. 30 per hour/20 units = Rs. ` 1.50 per unit
120% of normal piece rate = Rs. ` 1.80 per unit
Earnings = ` 1.80 × 165 units = Rs. 297
Labor cost per unit = Rs. 1.80

Comment: Labor cost increases from Rs. 1.20 per unit to Rs.1.80 per unit. Taylor’s system
is resisted on this ground as well as on the ground that it is very harsh on the workers.

Example 02:

ii) Merrick Differential Piece rate system:

Merrick afterwards modified the Taylor’s differential piece rate method. Under
this method, the punitive lower rate is not imposed for performance below
standard. On the other hand, performance above a certain level is rewarded by
more than one higher differential rate. Thus, this method rewards the efficient
workers and encourages the less efficient workers to increase their output by not
penalizing them for performance. This method also does not guarantee day wages.
So, Under Merrick differential piece rate system, wages paid to worker as
follows;

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MBA (Business Analytics)
 Case (1): Output = 160 units
Efficiency = 160/200 x 100 = 80%

Since the efficiency is less than 83%, the worker is paid only the basic rate, i.e. 10 paise.
Thus, earnings will be Rs 8 (80 x 0.1).

Case (2): Output= 180 units

Efficiency = 180/200 x 100 = 90%

As the efficiency is more than 83% but less than 100 percent, 10% above the normal rate
is paid to the worker. Thus,
Earnings = 90 x 110/100 x 0.1 = Rs 9.9

Case (3): Output = 220 units

Efficiency = 220/200 x 100 = 110%

As the efficiency is 110%, 20% above the normal rate is paid to the worker. Thus,
Earnings = 110 x 120/100 x 0.1 = Rs 13.30

Note: Under Merrick differential piece-rate system the workers are not penalized for
producing below the standard output up to 83%.

Topic 06: Premium Bonus Plan

Under premium bonus system, the gains are shared by the employer and employees in agreed ratio.
Apart from the minimum guaranteed wages, the efficient workers get bonus depending on the time saved.

Under this system a standard time is fixed for performing a job. If a worker can perform the job within
the time less than standard time, he is eligible to get bonus at his specific rate of wages for a percentage
of time saved. Standard time in determined on the basis of time and motion study.

The following are some of the important Premium Bonus Schemes:

(i) Halsey Plan;
(ii) Halsey-Weir Plan;
(iii) Rowan Plan;

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01) Halsey Plan:
A standard time is fixed for the performance of a particular job. If a worker can complete the job
before standard time, he is paid bonus for the time saved at a fixed percentage.

Generally, the worker is paid bonus @ 50% of standard time saved.

Total wages = (Time taken x Hourly Rate) +50/100 x (Time saved x Rate per hour.)

02) Halsey Weir Plan:

The Halsey plan is modified by Weir. Generally, the worker is paid bonus @ 33.33% of standard time
saved.

Total wages = (Time taken x Hourly Rate) +1/3 x (Time saved x Rate per hour.)

Problem 1:
Standard Time = 12 hours
Time taken = 8 hours
Time Rate = Rs.5.00 per hour.
Compute the total earnings under Halsey and Halsey-Weir Plans.
Solution:

Earnings under Halsey Plan:

Total Earnings = T x R + 50% of time saved x R. = (8 x 5) + (50/100 x 4 x 5)
= (40 +10) = Rs.50.

Under Halsey-Weir Plan:

Total Earnings = T x R + (33 1/3 % of time saved x R) = (8 x 5) + (1/3 x 4 x 5 = (40 + 6.67) =
Rs.46.67.

03) Rowan Plan:

Under this scheme bonus is calculated as the proportion of time taken which the time saved bears to the
time allowed.

𝑻𝒊𝒎𝒆 𝒔𝒂𝒗𝒆𝒅
Total Earnings = (Time taken x Hourly Rate) + ( × 𝐓𝐢𝐦𝐞 𝐭𝐚𝐤𝐞𝐧 × 𝐇𝐨𝐮𝐫𝐥𝐲 𝐑𝐚𝐭𝐞)
𝑺𝒕𝒂𝒏𝒅𝒂𝒓𝒅 𝑻𝒊𝒎𝒆

Problem 1:
A worker takes 10 hours to complete a job on daily wages and 6 hours on a scheme of payment by
results. His day rate is Rs.5.00 an hour. The material cost of the product is Rs.10 and the overheads
are recovered at 150% of the total direct wages. Calculate the factory cost of the product under
Rowan Plan.

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MBA (Business Analytics)
 Miscellaneous problems
Q1)
Bonus paid under the Halsey plan with bonus at 50% for the time saved = The bonus paid under the
Rowan system Show when this statement will be true?

Answer
Bonus as per Halsey = Bonus as per Rowan

𝟏 𝑻𝒊𝒎𝒆 𝑺𝒂𝒗𝒆𝒅
𝟐
× Time saved × Hourly Rate = 𝑺𝒕𝒂𝒏𝒅𝒂𝒓𝒅 𝑻𝒊𝒎𝒆 × 𝐓𝐢𝐦𝐞 𝐭𝐚𝐤𝐞𝐧 × 𝐇𝐨𝐮𝐫𝐥𝐲 𝐑𝐚𝐭𝐞

𝟏 SH−AH
Or, 𝟐 × (SH-AH) × Hourly Rate = 𝐒𝐇
× 𝐓𝐢𝐦𝐞 𝐭𝐚𝐤𝐞𝐧 × 𝐇𝐨𝐮𝐫𝐥𝐲 𝐑𝐚𝐭𝐞

𝟏 𝐒𝐇−𝐀𝐇
Or, × (SH-AH) = × 𝐓𝐢𝐦𝐞 𝐭𝐚𝐤𝐞𝐧
𝟐 𝐒𝐇

𝟏 𝟏
Or, 𝟐 = 𝐒𝐇 × 𝐓𝐢𝐦𝐞 𝐭𝐚𝐤𝐞𝐧

Or, 𝑺𝑯 = 2 × 𝐓𝐢𝐦𝐞 𝐭𝐚𝐤𝐞𝐧

Or, 𝑺𝑯 = 2 × 𝐀𝐜𝐭𝐮𝐚𝐥 𝐇𝐨𝐮𝐫 [since, Actual Hour = Time taken]

Conclusion: - it is only applicable when standard hour will be twice of the actual Hours.

Q2)
A skilled Worker is Paid Guaranteed wage rate of Rs.30 per hour. The standard hours for a particular task
are four hours. The worker is paid under the rowan incentive plan and he had earned rupees Rs.37.50 as
Total wage for a particular product if the bonus plan is being changed to Halsey scheme, then what will
be the total earning of the worker?

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MBA (Business Analytics)
 Answer:

Given That.
Total wage earned under Rowan incentive plan =Rs. 37.50 per hour

Standard Hours =4 hours

Let’s Assume, Actual Hours = T

So, Under Rowan Plan

𝟒−𝑻
37.50 x T =(30xT) + 𝟒
x T x 30

𝟒−𝑻
Or, 37.50 x T = (30 + 𝟒
x 30) x T
𝟒−𝑻
Or, 37.5 = 30 + 𝟒 x 30
𝟏𝟐𝟎+𝟏𝟐𝟎−𝟑𝟎𝑻
Or, 37.5 =
𝟒
Or, 150 = 240−30T
Or, 30T = 240-150
Or, 30T = 90
So, T = 3 hrs. … … … … … (1)

Under Halsey Scheme,

Total wages = (Time taken x Hourly Rate) +50/100 x (Time saved x Rate per hour.)
Or, Total Wages = (3 x 30) +0.5 x (4-3) x30
Or, Total Wages = 90 +15
Or, Total Wages = 105

Topic 07: Labor Turnover Rate

The Rate of new

Recruitment and
Separation

Separation Replacement Flux Method

Method Method

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Separation Method:

𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫 𝐒𝐞𝐩𝐚𝐫𝐚𝐭𝐞𝐝

The Rate of Attrition (Or Separation Rate) =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫

Replacement Method:

The Rate of Separation and New Recruitment only compared to separation

𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫 𝐑𝐞𝐩𝐥𝐚𝐜𝐞𝐝
(Or, Replacement Rate) =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫

Flux Method:

The Rate of Separation and New Recruitment including Fresh Recruitment

𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫 𝐒𝐞𝐩𝐚𝐫𝐚𝐭𝐞𝐝+𝐍𝐞𝐰 𝐑𝐞𝐜𝐫𝐮𝐢𝐭𝐦𝐞𝐧𝐭
(Or, Fresh Recruitment Rate) =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫

Example:
During the last 1 year 30 people gets replaced in a company. The labor turnover rate for Flux method,
Replacement method , and the Separation method are 10%, 5%, and 3% respectively.

Calculate The number of employees separated and the number of New Recruitment including
replacement.

Solution

𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫 𝐑𝐞𝐩𝐥𝐚𝐜𝐞𝐝

Replacement Rate =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫

𝟑𝟎
Or, 5% =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫

𝟑𝟎
Or, 𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫 = = 600
𝟎.𝟎𝟓

Now,
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫 𝐒𝐞𝐩𝐚𝐫𝐚𝐭𝐞𝐝
Separation Rate =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫

𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫 𝐒𝐞𝐩𝐚𝐫𝐚𝐭𝐞𝐝

Or, 3% =
𝟔𝟎𝟎
Or, Number of workers separated = (600 x 3%) =18

So, Number of employees separated during the year 18

Srabon Barua
MBA (Business Analytics)
Now,
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫 𝐒𝐞𝐩𝐚𝐫𝐚𝐭𝐞𝐝+𝐍𝐞𝐰 𝐑𝐞𝐜𝐫𝐮𝐢𝐭𝐦𝐞𝐧𝐭
Fresh Recruitment Rate =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐖𝐨𝐫𝐤𝐞𝐫

𝟏𝟖+𝐍𝐞𝐰 𝐑𝐞𝐜𝐫𝐮𝐢𝐭𝐦𝐞𝐧𝐭
Or, 10% =
𝟔𝟎𝟎

Or, (600 x 10%) = 18 + New Recruitment

Or, 60 = 18 + New Recruitment
Or, New Recruitment = 60 – 18
Or, New Recruitment = 42

So, Newly Recruited Employees during the year 42.

Example 02
Total effective working hours before adjusting the idle time 345000 hours. Training provided to
the new recruits 30,000 hours out of which 50% was off the job. Hours lost due to delay in
recruitment 75,000 hours. Total sales during the year Rs.6,00,000. Profit- volume (P/V) ratio 20%.
Total cost of separation and recruitment Rs. 84,000.

Calculate the Profit foregone (or Cost of Labor Turnover). \

Solution:

Effective Working hour = 3,45,000

Training provided to New recruits = 30,000 hours.
Actual Effective hours = (3,45,000 – 30,000) = 3,30,000
Total Sales = 6,00,000.
𝟔,𝟎𝟎,𝟎𝟎𝟎
So, Sales revenue per hour = = Rs. 1.82 per hour.
𝟑,𝟑𝟎,𝟎𝟎𝟎

Sales revenue foregone (or, sales revenue lost) = (1.82 x 75,000) = Rs. 1,36,500.

So, Contribution Foregone = (1,36,000 x 20%) = Rs. 27,300.

So, the total cost of Labor turnover = (27,300 + 84,000) = Rs.1,11,300.

Srabon Barua
MBA (Business Analytics)
 Miscellaneous terminology

1) What is Cost center?

Ans: A cost center is a department or function within an organization that does not directly
add to profit but still costs the organization money to operate.

Example: accounting, human resources, IT, maintenance, and research & development
departments.

2) What is Overhead?
Ans: Overhead refers to the ongoing business expenses not directly attributed to creating a
product or service.

Example: rent, administrative costs, or employee salaries.

3) Define Normal and Abnormal Idle time.

Ans: Normal idle time is part of the total product cost. Examples of normal idle time include
employee breaks, routine maintenance, and machine set-up time.

Abnormal idle time, on the other hand, is caused by factors that are controllable by management.
Abnormal idle time is avoidable.

4) State the use of Cost sheet.

Ans: A cost sheet analyzes the components of cost in order to show the per-unit cost for a given
product. Business managers use cost sheets as reference documents to help manage purchasing
and production costs, and to find the right selling prices for products and services.

5) Define Direct labor.

Ans: The wages paid to workers who are directly involved in the manufacture of a specific
product or in performing a service.

Example: Assemblers, welders, painters, and machinists would all be considered direct labor.

6) Define Indirect Labor.

Ans: Indirect labor is the cost of any labor that supports the production process, but
which is not directly involved in the active conversion of materials into finished
products.

Examples of indirect labor positions are the production supervisor, purchasing staff,
materials handling staff, materials management staff, and quality control staff.

7) Distinguish between salary and wages.

Ans: The essential difference between a salary and wages is that a salaried person is
paid a fixed amount per pay period and a wage earner is paid by the hour.

Srabon Barua
MBA (Business Analytics)
 For example, if a person has a $52,000 salary and he is paid once a week, then the gross
amount of each of the 52 paychecks he receives during the year is $1,000 ($52,000 / 52
weeks). The person receiving a salary is not paid a smaller amount for working fewer
hours, nor is he paid more for working overtime.

Someone who is paid wages receives a pay equal to rate per hour, multiplied by the number
of hours worked. This person is considered to be a non-exempt employee.

For example, a person who is paid a wage of $20 per hour will receive gross pay of $800
($20/hr x 40 hours) if he works a standard 40 hour week, but will only receive gross pay of
$400 ($20/hr x 20 hours) if he works 20 hours in a week. A person who receives wages is also
entitled to overtime pay of 1.5x his normal rate of pay if he works more than 40 hours per
week.

8) Explain Normal loss and abnormal loss of materials.

Ans: Normal Loss is a loss that takes place due to the inherent nature of the raw materials and
process of production under ordinary circumstances.

Abnormal Loss refers to a loss that arises due to unexpected events like defective material,
carelessness, machinery breakdown, etc. ome examples of direct costs are listed below:
Direct labor.
Direct materials.
Manufacturing supplies.
Wages for the production staff.
Fuel or power consumption.

9) Give any three examples of direct expenses.

Ans: Some examples of direct costs are listed below:

• Direct labor.
• Direct materials.
• Manufacturing supplies.
• Wages for the production staff.
• Fuel or power consumption.

10) If carriage inwards have been included in the factory costs, then, by principle, how the cost
sheet gets affected?
Ans: Prime cost will get decreased and factory cost will get decreased.

11) Define Fixed costs, Variable costs, and Semi-variable costs.

Ans:
The fixed cost refers to a cost that doesn’t change regardless of the production output. In
contrast, a variable cost is one that depends solely on the level of output. A semi-variable cost
therefore combines the features of a fixed cost and a variable cost.

Srabon Barua
MBA (Business Analytics)
12) Define direct costs and indirect costs.
Ans:
Direct cost is the cost incurred by the organization while performing their core business activity
and can be attributed directly in the production cost like raw material cost, wages paid to
factory staff etc.,

whereas, Indirect cost is the cost that cannot be directly attributed to the production as these
costs are incurred in general and can be fixed or variable in nature like the office expenses, salary
paid to administration, etc.

13) Define prime cost.

Ans:
It refers to the direct cost of a commodity in terms of the materials and labor involved in its
production process, excluding fixed costs.

14) Deference between Cost Accounting and Financial accounting.

Ans:

15) What is Costing?

Ans: Costing is any system for assigning costs to an element of a business.

Srabon Barua
MBA (Business Analytics)